Shares of Denison Mines (NYSEMKT: DNN), a uranium exploration and development company, climbed 28% in September, according to data from S&P Global Market Intelligence. In addition to the news that Denison intends to acquire 100% of Cameco's interest in the Wheeler River Joint Venture, shareholders celebrated the reporting of favorable results from the company's pre-feasibility study (PFS) conducted at Wheeler River.
Located in northern Saskatchewan, Wheeler River, according to Denison Mines' website, is "the largest undeveloped uranium project in the infrastructure rich eastern portion of the Athabasca Basin region."
Image source: Getty Images.
In a move that will increase its interest in the project to approximately 90%, Denison announced that it will purchase the entirety of Cameco's minority stake in the Wheeler River Uranium Project. According to the terms of the transaction, Cameco will receive 24,615,000 shares of Denison stock, representing a total consideration of approximately $16 million.
But the more auspicious news during the month revolved around the results of the eagerly awaited PFS. Addressing the Phoenix deposit, which is estimated to have a mine life of about 10 years, management highlighted the favorable economics of the future operation, stating its opinion that it has "exceptionally low operating costs for an undeveloped uranium deposit globally." Management stoked investors' enthusiasm by identifying a base-case operating margin for the project of 91.4% with a pre-tax internal rate of return (IRR) of 43% and a pre-tax payback period of about 21 months.
Though not as enticing as Phoenix, the Gryphon Operation also offers significant value. Management reported that under the base-case scenario, Gryphon offers a potential operating margin of 77%, a pre-tax IRR of 23.2%, and a pre-tax payback period of about 37 months.
When taking the entirety of the Wheeler River project into account, Denison's management -- assuming it achieves the 90% ownership stake upon finalizing the deal with Cameco -- foresees a base-case post-tax IRR of 32.7% and a high-case post-tax IRR of 55.7%, yielding payback periods of about 26 months and 12 months, respectively. Suffice it to say, the successful development of the Wheeler River Uranium Project could turn out to be a gold mine for Denison, but there are plenty of challenges that the company still faces as it attempts to bring the project to fruition. Consequently, only those investors with a high tolerance for risk should keep this mining company on their radars.
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